Home Buyers

Median home price + Freddie Mac average 30-year fixed mortgage rate (full amt) as percentage of median family income

I obtained the unadjusted median sales price (US, CB and HUD) information from the Federal Reserve of St. Louis. I then also obtained the Freddie Mac average 30-year fixed mortgage rate and applied this to the full median home price amount and calculated the total payments. I then divided this by the median family income in the US from census data, which I obtained from the Federal Reserve.

What you will see is that, with the increase in interest rates, the ratio of payment to income has spiked. However, the interest rates had been historically low making housing relatively affordable despite the high price tag. In the early 1980s, the median housing payments spiked over 50% of the median family income.

Just a few notes on this, this would assume that there was no down payment, which is not going to be the case. Since down payments will vary, I chose to just assume no down payment in order to have an equal comparison. The result is that the payments would not likely be as high at any point, but the ratio from one time period to another should be consistent. I am comparing apples to apples.

Below is an image of median home price divided by median family income. You can see that the median house price is higher relative to income today then in prior years of the chart.

Take aways:

As a result of the extremely high mortgage rates in the late 1970s/early 1980s, actual mortgage payments were a much larger portion of their income, even though the actual home price was lower compared to recent years. One might argue that when the price is lower and interest is higher, your payment can get lower by refinancing later. However, the overall payments were above 35 percent of income for over 10 years.

Also note that because the sale prices of the homes are so much more expensive now relative to income, saving up a down payment in the current market is a much higher barrier to entry as compared to in the late 70s and early 80s.

I should also comment that I was looking at the median FAMILY income. I need to add information on the percentage of these homes that were two parents working then versus now. I am going to guess that a greater percentage of homes have both parents working now. This presents an added cost of childcare, resulting in higher costs today. I was a gen-x latch key kid. Today, parents could have their kids taken away for kids being left home alone. Childcare is not an option for working parents. It is an expensive requirement.

Stay tuned for data on the percentage of double income homes. I will also provide another analysis looking at renting costs/ affordability.